The results of the Securities and Exchange Board of India’s (Sebi) latest survey of the country’s derivatives market are instructive. The regulator’s efforts to deter retail investors from piling up losses have worked, but only up to a point. Sample these findings.
The number of active individual traders in equity futures and options (F&O) fell 18% to under 8.8 million in 2025-26, while new entrants slumped almost 40% to under 2.1 million.
Clearly, the barriers erected by Sebi in the second half of 2024-25—by way of bigger contract sizes, axed calendar-spread benefits and upfront margins—to go with a transaction-tax hike by the Centre have pushed some traders away.
Yet, those who kept trading mostly lost money. In all, 87.7% of individual F&O traders lost money last fiscal year, down from 90.9% in 2024-25. Their average loss per trader rose slightly to nearly ₹1.2 lakh, even as their total losses dropped 18% to ₹91,685 crore.
More than a third of this market segment’s retail participants held no shares whatsoever, while less than a fifth had an equity portfolio worth at least ₹1 lakh.
Gambling is addictive for the buzz it delivers. It wins people to their harm with honest trifles, only to betray them in matters of actual consequence. The ‘house’ that rakes in most of the F&O chips are sophisticated traders, often armed with algorithms.
Last year, proprietary trading firms made ₹44,000 crore in gross profits, foreign portfolio investors raked in ₹14,000 crore and corporates another ₹8,000 crore.
This is not just an acutely lopsided deal for millions of Indians, it’s poignant too: three-fourths of India’s retail F&O traders earn under ₹5 lakh per year as income. They are heavy users of options, which let one buy or sell stocks (or indices) at fixed prices within a specific time-frame for a fee.
If one expects to offload shares, then buying an option to sell them at a good price can hedge the risk of their slipping below that level. But one can also go ‘short’ or ‘long’ on shares one doesn’t own through options to buy them higher or lower than what their prices might turn out be (and then pocket the difference).
This is speculation. It is also an invitation to wild bets—and Sebi data suggests that the thrill of a few lucky strikes keeps punters going.
To Sebi’s credit, it has been flagging these risks and losses for years, even as other studies have shown India to be a global outlier on retail F&O participation.
In developed markets, rookies tend to leave this game to experts, although we have seen a few targeted short-squeeze operations (recall the Gamestop episode of 2021 in the US).
No doubt, household players can develop derivatives expertise too, but their record of losses in India from one Sebi survey to the next appears to argue for stiffer deterrents than imposed in 2024-25. An all-out crackdown, however, could go badly.
If addiction plays a role in F&O gambles, then compulsive behaviour could migrate to other platforms. Crucially, speculative activity based on an actual grasp of how and why prices move up and down is perfectly fine.
A key role of any such market is to pool people’s views together, for which wide participation is important. If the F&O segment ends up exclusive to institutions, it would lose vital inputs as well as liquidity.
An investor-education campaign may be the need of the hour. Most public messages being aired ask folks to let professionals invest their money. Not everyone listens. But nor does that make every retail bet reckless.